Sections 213, 214, 218, Companies Act 2016
Breach of Directors' Duties in Malaysia
Directors are given wide powers to run a company, and the Companies Act 2016 attaches specific legal duties to that power. When a director acts in their own interest, misuses company property, or is simply careless with the company's affairs, the company, and sometimes its shareholders, have a remedy.
The core duties directors owe
Definition
Section 213(1) of the Companies Act 2016 requires a director to exercise their powers for a proper purpose and in good faith in the best interest of the company at all times. Section 213(2) adds a duty of reasonable care, skill, and diligence, judged both objectively (what a director with the same responsibilities would do) and subjectively (using the director's own additional knowledge and experience). Section 218 separately prohibits a director from using company property, confidential information, their position, or a business opportunity for personal gain or to the company's detriment, unless approved or ratified by the general meeting.
The business judgment rule
Not every bad outcome is a breach of duty. Section 214 protects a director who made a business decision that later went wrong, provided they can show: the decision was made for a proper purpose and in good faith; they had no material personal interest in it; they were reasonably informed about the subject matter; and they reasonably believed the decision was in the company's best interest.
Common breaches we see
Self-dealing
A director awards company contracts to a business they own or control, without disclosure or approval.
Diverting opportunities
A director takes a business opportunity that belonged to the company for themselves or a related entity.
Unauthorised payments
Loans, bonuses, or "consultancy fees" paid to a director without proper board or shareholder approval.
Withholding information
Refusing to give the board or shareholders accurate financial information to conceal mismanagement.
Conflicts of interest
Voting on a matter, or continuing to act, where the director has an undisclosed personal interest.
Reckless trading
Continuing to trade, and incur debt, while knowing the company cannot pay its existing debts.
Remedies and penalties
- Criminal liability: a director who contravenes Section 213 commits an offence, punishable on conviction by up to 5 years' imprisonment, a fine of up to RM3 million, or both.
- Civil claim by the company: the company can sue the director to recover the loss caused, or an account of profits made through the breach.
- Derivative action: where the board will not pursue the company's claim, a shareholder or director can apply for leave to bring the claim on the company's behalf under Section 347, after 30 days' notice under Section 348.
- Minority oppression: where the conduct also personally disadvantages a shareholder, a separate claim under Section 346 may be available alongside, or instead of, action against the director.
Common mistakes
Confusing a bad decision with a breach of duty
The business judgment rule protects genuine, informed, good-faith decisions even when they turn out badly. The claim needs to show the decision-making process failed, not just that the outcome was poor.
The company staying silent while a shareholder sues personally
Harm to the company is the company's claim to bring. Suing personally for a corporate loss risks the case being struck out; the correct route is usually a derivative action.
Not preserving evidence early
Company records, emails, and board minutes are the evidence. Where there is a real risk a director will delete records or move assets, an urgent application may be needed before anything else.
Frequently asked questions
What are a director's main legal duties in Malaysia?
Under Section 213 of the Companies Act 2016, a director must exercise their powers for a proper purpose and in good faith in the best interest of the company, and must exercise reasonable care, skill, and diligence. Section 218 separately prohibits misusing company property, information, or position for personal gain.
What happens if a director breaches Section 213?
A director who contravenes Section 213 commits an offence and, on conviction, faces imprisonment of up to 5 years, a fine of up to RM3 million, or both. The company can also pursue a civil claim against the director for the loss caused.
Can a director rely on a business decision that turned out badly?
Yes, if it meets the business judgment rule under Section 214. A director is protected if the decision was made for a proper purpose and in good faith, they had no material personal interest, they were reasonably informed, and they reasonably believed the decision was in the company's best interest.
Who can bring a claim against a director for breach of duty?
The company itself is the proper claimant, since the duty is owed to the company. Where the board will not act, a shareholder or another director can apply for leave to bring a derivative action under Section 347 on the company's behalf, after giving 30 days' notice under Section 348.
Related reading
Think a director has breached their duties?
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WhatsApp a Lawyer NowThis page is general legal information current as of July 2026 and is not legal advice. It does not create a solicitor-client relationship and no outcome is guaranteed. Malaysian advocates and solicitors are not permitted to act on a "no win no fee" basis. Your specific circumstances may change which remedy applies — speak to one of our lawyers before acting on any deadline mentioned here.